Shervin Pishevar is now established as one of the foremost financial experts in the country. He is the founder and CEO of Investment company, one of the most successful venture capital firms in the technology space. Investment company has funded many startups, including Airbnb, Uber and Virgin Hyperloop. As an entrepreneur on his own, Shervin Pishevar has also founded such big-name tech companies as Ionside, WebOS and Social Gaming Network.
Thank you Larry Ellison for defending @elonmusk
“He’s landing rockets on robot drone rafts in the ocean and you’re saying he doesn’t know what he’s doing. Well, who else is landing rockets? You ever land a rocket on a robot drone? Who are you?” https://t.co/lERmntsJ9t
— Shervin Pishevar (@shervin) October 26, 2018
Recently, Shervin Pishevar took to his widely followed Twitter account to talk about some of the more serious challenges facing the nation. One of the issues that he addressed is the coming pain that will likely be inflicted on cities like Chicago, Hartford, Stockton, Baltimore, Newark and others that have been imperiled by shaky finances and bloated pension obligations.
In particular, Shervin Pishevar says that the zero interest rate policies of the Federal Reserve, in conjunction with its quantitative easing programs, have conspired to suppress bond yields to levels not seen in virtually all of history. This, says Shervin Pishevar, causes two main problems.
The first problem is that these municipalities usually rely heavily on the low-risk revenues and capital appreciation delivered by bonds. However, because bond yields have been so low, this source of revenue has lost its effectiveness. Most municipalities have factored in long-term rates of return on their portfolios of around 7 percent. But this is completely impossible to achieve in markets where real interest rates have actually gone negative. For this reason, these municipalities have dived, headfirst, into risk assets, mainly equities. But the open-market operations of the Fed themselves have caused a great runup in equity prices. This means that the stock market could experience a huge crash and, according to Shervin Pishevar, is certainly overbought at present. All of this means that municipalities are extremely unlikely to meet their 7 percent target rates. And they could end up experiencing losses. Such an outcome would precipitate the bankruptcies of many cities throughout the country.
Additionally, the cheap credit has prompted many of these cities to finance their short-term operations using debt. But this exposes them to huge refinancing risk. Pishevar says these combined factors could spell doom for cities everywhere.